Agency eBook Pricing Model Under Anti-Trust Scrutiny!

The European Union has finally stepped up to handle the biggest issue facing the economy today. It’s a long time coming, but someone is finally asking questions and looking for answers. Yes, the “agency model” for ebooks is finally being investigated! What, you thought I meant something else? 😉

According to Businessweek, several publishers as well as Apple are listed in the investigation, but not Amazon. My guess is that since Amazon was not soliciting contracts for the agency model (they were forced into it after a very public battle) they’re not under the microscope. It will be interesting to see if Amazon or any other retailer besides Apple gets included in this as the investigation continues.

From the article:

Dec. 6 (Bloomberg) — Apple Inc., the world’s biggest technology company, and five e-book publishers are being investigated by European Union antitrust regulators over deals that may restrict sales across the region.

The probe targets the iPad-maker’s deals with Lagardere SCA’s Hachette Livre, News Corp.’s Harper Collins, CBS Corp.’s Simon & Schuster, Pearson Plc’s Penguin and Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan division, the European Commission said in an e-mailed statement. Publishers’ deals with retailers are also under scrutiny.

PricewaterhouseCoopers said in a January report that European e-book sales have been sluggish, partly due to the small range of non-English titles and fixed price agreements between publishers and stores in 13 countries. EU Competition Commissioner Joaquin Almunia said last month that he wanted to fight “artificial restrictions imposed by some companies to cross-border trade” and was examining the way e-books are distributed.

Today’s probe “will in particular investigate whether these publishing groups and Apple have engaged in illegal agreements or practices that would have the object or the effect of restricting competition,” the Brussels-based authority said.

Not to be outdone, and fresh off their fight with AT&T, the Department of Justice in the United States is also investigating Apple and the agency publishers. The Wall Street Journal says:

Antitrust enforcers are examining the “agency pricing” model, which Apple introduced with its iPad tablet in April 2010. Until then, e-books had been sold under the standard “wholesale model” used in the industry. Under that arrangement, publishers sell books to retailers at a wholesale price, and retailers then set the price they charge consumers.

To spur sales of its Kindle e-readers, Amazon heavily discounted e-books, pricing many new best sellers at $9.99. Amazon shouldered the loss to sell the books cheaply, but many publishers felt the practice undercut their ability to sell hardcover books at higher prices.

Apple took a different tack. It told publishers that consumer books would be part of the launch of the iPad if enough publishers agreed to sell their titles under the agency-pricing model, a strategy that effectively prevented discounting. Apple would take a 30% cut.

The model became the de facto standard for books written by many of the country’s most popular writers, because publishers told Amazon it had to abide by the same terms and Amazon complied. The shift effectively ended Amazon’s ability to offer sharp discounts or undercut other retailers like Apple.

Before you get too excited, though, remember that these things take time. You’re not going to wake up tomorrow and discover new discounts and pricing on ebooks, sadly. What’s more likely is that pricing may change on its own. In the article, Pricewaterhouse comments that fixed price agreements are slowing sales. If that continues, even before the dust settles on any legal battles we may see changes. The agency model isn’t sacred, and if it kills sales then publishers and retailer will be under pressure to make changes.

All of this will take time and an army of lawyers to sort through, but an anti-trust investigation from the EU and the DOJ validates what ebook fans and tech bloggers have been saying for over a year. The agency model is cartel pricing that is anti-competitive and anti-consumer, and hopefully the end result is that this ill-conceived business plan is killed off for good. Hopefully we’ll see those results sooner rather than later!

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